Those holding their breath for the Bank of Canada to hike its benchmark rate a second time this summer may want to take another gulp of air while they wait.
Canada’s consumer price index rose 1% year-over-year in June, down from 1.3% in May, according to data released Friday (July 21) from Statistics Canada.
Earlier this month the Bank of Canada raised its benchmark rate from 0.5% to 0.75%. The rate hike — the first in nearly seven years — came despite weak inflation numbers that still persist in June’s data.
But the core inflation rate, which strips out more volatile components such as gasoline and food prices, inched up to 1.4% year-over-year in June — up from 1.3% in May.
“That’s still soft, but it is directionally in line with the BoC’s expectations … for core inflation to move higher into the remainder of this year and next year even if this may be a month or two ahead of expectations along what is sure to be a volatile path,” Scotiabank Economics vice-president Derek Holt said in a note to investors.
Statistics Canada data shows food prices rose 0.6% last month, while gasoline fell by 1.45%.
In B.C., the consumer price index rose 1.7%.
Despite the core rate crawling upward, CIBC economist Nick Exharos said in a note to investors that the numbers are weak enough to delay a second expected rate-hike at least one more month.
“The factors delaying a cyclical turn to higher core inflation have proved themselves to be persistent, a reason for the Bank of Canada to take it slow in tightening monetary policy, suggesting an October move (rather than September) and a long pause after that,” Exharos said.
But while inflation numbers are soft, Statistics Canada data showed retail sales rose 0.6% to reach $48.9 billion in April.
B.C. had the largest monthly gains in retail sales, rising 2.6% followed by Alberta’s 1.6% gain.
“The Canadian consumer continues to be on a tear, grabbing off store shelves everything that strong job growth and cash hand-outs from Ottawa can finance (e.g. huge increases in child benefit payments),” Holt said.
Douglas Porter, chief economist at BMO Capital Markets Economics, said the latest inflation and retail numbers are on the firm side of expectations.
“Overall, there’s nothing here to keep the BoC [Bank of Canada] from staying on its gradual — presumably very gradual — tightening path,” he said in an investors’ note.
